[a cu men]
n. keenness and depth of perception, discernment or discrimination, especially in practical matters.
Your Retail Pricing Model
Since 1984, the Federal Trade Commission has required funeral homes to categorize and present their prices in accordance with standards established in the Funeral Rule. While funeral home owners are required to comply with certain format and verbiage requirements with respect to these FTC guidelines, there is no requirement which pertains to how your prices are established – or how often to change them.
PARADIGM SHIFTS
Funeral directors who have several decades of experience can list a variety of different pricing methods that have come and gone throughout their career. Unit pricing, common back in the day, was eventually replaced by itemization with the advent of the Funeral Rule. In time, variants, including packaging and discounting, became common.
Perhaps even more tenuous for some than the methodology is the argument for or against adjusting prices at all; some firms regularly adjust their prices while others tend to avoid it altogether. Indeed, pricing theories, justifications, and methodologies run the gamut – and, like most things associated with our profession, have changed considerably over time.
PRICE TO MARKET
In order to operate successfully, any business enterprise should price their goods and services to the market they serve, while also covering their operational costs and generating a reasonable profit. Some firms may still use a by-guess-and-by-golly approach to pricing their goods and services while others have no doubt fashioned complex spreadsheets to analyze and calculate the intricacies of use, cost, and margin.
Every business owner or manager needs to find that critical balance between pricing models that are fair to the firm and fair to the community they serve. As the cost of doing business continues to escalate – and the marketplace becomes more competitive – striking this balance can at times be a challenging feat.
HOW DOES THE RETAIL PRICING MODEL AFFECT A SALE?
In the strictest sense, the amount of revenue a firm generates will have much to do with establishing the basis by which the firm will be valued in a sale. Among other things, potential buyers will be interested in call volume, case mix, and revenue trends as a routine matter of their due diligence. Most will want to review the GPL and merchandise price lists as well.
Established revenue trends will have a lot to do with the value of your firm when it comes time to sell. If your sales are flat, case mix is continually trending toward increased direct cremation, and your GPL has not been updated in six years, your Profit & Loss Statements will surely reflect this.
Moreover, if you’re interested in selling your business and your services and merchandise are under-priced, it’s important to understand that you may not be positioned well to sell. If you would receive offers under this scenario, the offers could be low simply because it’s very difficult for a new owner to immediately raise prices following an ownership transition. Not only would this make it difficult for the new owner to gain (or even maintain) traction within the community, it can also create ill-will among staff. New owners will want to avoid both.
If you are under-priced and considering a sale, you may be wise to develop and implement a plan to bring your pricing model more in line with your market.
NO ONE RIGHT WAY
Clearly, each firm and owner must give thoughtful consideration to this topic. While there is no particular model that is considered the only right way, it is safe to say that fairness and transparency are good attributes to apply to the process. A proper pricing model should yield honesty, fairness, and value to your firm and your client families.
Doing the right things for the right reasons always pays good dividends.
NOTE: SCI and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
We’re focusing on “acumen” in a series of brief, informative topic summaries. Acumen, as defined by Merriam-Webster, refers to “keenness and depth of perception, discernment or discrimination, especially in practical matters.” Each summary is a brief introductory overview of a topic; new topics will be added periodically. As you read through the summaries, put your list of questions together. Then give us a call. There’s no cost or obligation to visit with us – and every conversation and communication is kept completely confidential. Our team is always available to serve as a reliable resource for questions about transition.
PARADIGM SHIFTS
Funeral directors who have several decades of experience can list a variety of different pricing methods that have come and gone throughout their career. Unit pricing, common back in the day, was eventually replaced by itemization with the advent of the Funeral Rule. In time, variants, including packaging and discounting, became common.
Perhaps even more tenuous for some than the methodology is the argument for or against adjusting prices at all; some firms regularly adjust their prices while others tend to avoid it altogether. Indeed, pricing theories, justifications, and methodologies run the gamut – and, like most things associated with our profession, have changed considerably over time.
PRICE TO MARKET
In order to operate successfully, any business enterprise should price their goods and services to the market they serve, while also covering their operational costs and generating a reasonable profit. Some firms may still use a by-guess-and-by-golly approach to pricing their goods and services while others have no doubt fashioned complex spreadsheets to analyze and calculate the intricacies of use, cost, and margin.
Every business owner or manager needs to find that critical balance between pricing models that are fair to the firm and fair to the community they serve. As the cost of doing business continues to escalate – and the marketplace becomes more competitive – striking this balance can at times be a challenging feat.
HOW DOES THE RETAIL PRICING MODEL AFFECT A SALE?
In the strictest sense, the amount of revenue a firm generates will have much to do with establishing the basis by which the firm will be valued in a sale. Among other things, potential buyers will be interested in call volume, case mix, and revenue trends as a routine matter of their due diligence. Most will want to review the GPL and merchandise price lists as well.
Established revenue trends will have a lot to do with the value of your firm when it comes time to sell. If your sales are flat, case mix is continually trending toward increased direct cremation, and your GPL has not been updated in six years, your Profit & Loss Statements will surely reflect this.
Moreover, if you’re interested in selling your business and your services and merchandise are under-priced, it’s important to understand that you may not be positioned well to sell. If you would receive offers under this scenario, the offers could be low simply because it’s very difficult for a new owner to immediately raise prices following an ownership transition. Not only would this make it difficult for the new owner to gain (or even maintain) traction within the community, it can also create ill-will among staff. New owners will want to avoid both.
If you are under-priced and considering a sale, you may be wise to develop and implement a plan to bring your pricing model more in line with your market.
NO ONE RIGHT WAY
Clearly, each firm and owner must give thoughtful consideration to this topic. While there is no particular model that is considered the only right way, it is safe to say that fairness and transparency are good attributes to apply to the process. A proper pricing model should yield honesty, fairness, and value to your firm and your client families.
Doing the right things for the right reasons always pays good dividends.
NOTE: SCI and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
We’re focusing on “acumen” in a series of brief, informative topic summaries. Acumen, as defined by Merriam-Webster, refers to “keenness and depth of perception, discernment or discrimination, especially in practical matters.” Each summary is a brief introductory overview of a topic; new topics will be added periodically. As you read through the summaries, put your list of questions together. Then give us a call. There’s no cost or obligation to visit with us – and every conversation and communication is kept completely confidential. Our team is always available to serve as a reliable resource for questions about transition.
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